Business Directories

Aldar plans to cut $3.8bn debt as business recovers

Abu Dhabi, August 8, 2013

Abu Dhabi developer Aldar Properties laid out plans to cut its $3.8 billion debt by more than half in coming years as it starts to recover from a real estate slump and reaps the benefits of a merger with its main rival.

Property prices in the emirate slumped by more than half after the global financial crisis and Aldar, one of the largest Middle Eastern developers, was saved from collapse by a $10 billion government bailout in 2010.

Three years on, Aldar is still struggling. Its revenue slumped in the second quarter, when sales were scarce, and its net income came mostly from a one-time gain linked to the purchase of its main rival Sorouh Real Estate earlier this year.

Chief financial officer Greg Fewer said revenue would start to improve in the third quarter as Aldar benefits from Sorouh's revenue stream and would grow further by year-end when it begins delivering more than 7,000 units.

He said recurring income, which comes mainly from malls and hotels, would grow from the third quarter when Sorouh's recurring revenue is integrated with Aldar's.

Aldar, which built Abu Dhabi's Formula One race track, will look to reduce its leverage and is aiming to slash debt to between 4 billion and 5 billion dirhams ($1.36-1.09 billion) from 14 billion in the next few years.

"You would expect 35 to 40 percent debt against the value of your recurring assets that will give an optimal level of leverage and operational flexibility," Fewer said in a conference call on Wednesday.

The firm hopes to repay the debt through receivables from its government projects and recurring income businesses.

Fewer said Aldar, with about $12 billion in assets, was looking to refinance its debt, including a $1.2 billion bond maturing next year.

"We will be requesting many discussions with banks on various debt, including the $1.2 billion debt maturing next year," Fewer said.

The bulk of Aldar's debt matures next year and two of those notes will be carried beyond 2014. Fewer said that no banks had so far been mandated for its refinancing plans.

In its first earnings announcement after the Sorouh takeover was completed in June, Aldar said it made second-quarter net profit of 1.25 billion dirhams ($340.3 million), compared with 418 million dirhams in the same period of 2012.

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The earnings included a one-time gain of 2.6 billion dirhams from the combination of its business with Sorouh, said Aldar, which is 30.5-percent owned by Abu Dhabi state fund Mubadala.

Fewer said the gain represented the difference between the value of shares issued to acquire Sorouh and the value of Sorouh's assets. The figure was less than some investors had expected.

"The stock had gained in expectations of acquisition gains, which were expected to be higher than the reported 2.6 billion, and we expect to see profit taking once the exchange resumes trading," Ambereen Jiwani, senior analyst at Bahrain's Securities & Investment Company (SICO), said in a note.

The developer also booked provisions, impairments and write downs of 1.1 billion dirhams in the second quarter.

Property firms in the United Arab Emirates were forced to scrap projects and restructure debt after the real estate collapse. Dubai has been gradually emerging from the crisis thanks to renewed optimism over the economy, but recovery in neighbouring Abu Dhabi has been slow, largely due to continued oversupply.

Aldar plans to hand over more than 7,400 units in the next 12 months.

In an attempt to revive demand, Abu Dhabi's government has pressed its public sector employees, many of whom live in the more popular emirate Dubai, to relocate within its borders.

Fewer said that would help solve some of the supply problem.

"There is a lot of supply coming now but as government employees relocate to Abu Dhabi that supply would be taken up," he said.

Aldar's shares have more than doubled year-to-date on the back of Sorouh merger. The stock was not trading on Wednesday due to the Muslim Eid holiday in the UAE. – Reuters